Toll Road deal lacks impartial scrutiny

ANALYSIS

ANALYSIS

January 30, 2006|MARTIN DeAGOSTINO Tribune Staff Writer

INDIANAPOLIS -- Public and legislative debate on a proposed lease of the Indiana Toll Road probably will occur without any detailed, independent analyses of the proposal, according to economists and public policy experts. In their view, the only private-sector analysis that is likely to occur already has been done by the four bidders, and no publicly accessible studies have been commissioned. That does not mean that no one can analyze the broad outlines of the deal, these experts say. But any in-depth study would involve a web of assumptions and data that are beyond the scope of most individuals or organizations. "No one outside of a firm like Macquarie-Cintra is going to have the expertise to come up with a full analysis," said Thomas A. Gresik, professor of economics and econometrics at the University of Notre Dame. Macquarie-Cintra is the bid-winning Australian and Spanish consortium that has offered Indiana $3.85 billion to operate and maintain the highway for 75 years. In return, the company will receive all toll and concession revenues from the 157-mile roadway. Gov. Mitch Daniels is seeking legislative authority to close the deal, and a critical vote is pending this week in the House of Representatives. On its face, both ends of the equation are staggering. Indiana's upfront proceeds would roughly equal a third of its annual budget, or enough to generate $193 million in annual earnings at 5 percent simple interest. And gross toll revenues for the first 25 years of the lease would exceed $4.4 billion, according to projections by Wilbur Smith Associates, a Chicago engineering firm. The firm's projections do not include annual toll increases of at least 2 percent that are authorized by the proposed lease with Cintra-Macquarie, as the partners are more commonly called. The firm is doing business here as Statewide Mobility Partners. But will the company impose maximum tolls every year, or will it dampen fares based on traffic's response to prices? And what value can be assigned to $1 -- or $4.4 billion -- that is collected 30 or 50 years hence? "Money tomorrow is worth less than money today," said Ryan Kitchell, state public finance director. That value can be calculated, but it relies on inflation projections and other assumptions that not all analysts might share. Steven R. Johnson, president and chief executive officer of the Indiana Fiscal Policy Institute, said some of those assumptions include no major economic disruptions over 75 years and no fundamental transformation of vehicle and highway use. Beyond that, the winning and even losing bidders assume or plan operational details for the Toll Road that no one else can know. In Cintra-Macquarie's case, that involves knowledge gained by running major toll projects around the world, including the Chicago Skyway and Detroit-Windsor Tunnel. "We don't have the expertise," Gresik said. "That's the difference." Yet Gresik's own analysis suggests that Indiana should take the deal. He bases that conclusion on the difference between Toll Road profits and the amount of investment earnings the state could earn from its lump-sum payment of $3.85 billion. Profits, including securities investments, have ranged from $31 million to $8 million in recent years, compared to the investment potential of $193 million. "It's more," Gresik said. Not everyone agrees that price alone should drive the deal. John Mikesell, professor of public finance and policy analysis at Indiana University, said the proposed lease involves major policy choices that require broad discussion. "The strangest thing about the whole adventure is that the governor would advertise for bids before he had clear legislative authority to enter into the lease," Mikesell said. Although many lawmakers have said they could not OK a lease without specific bids on the table, Mikesell said most good economists could have "ballparked" a value for them. Yet no economists have entered the fray with any detailed analyses, including Mikesell, who said he favors the privatization of government functions "whenever possible."